Federal Reserve rate cut can’t stop stocks from falling again
San José, CA – On Tuesday, March 3, the U.S. central bank, the Federal Reserve, cut interest rates by one-half of one percent. This emergency action was taken between the regular Fed meetings every six weeks. This was the first time that the Fed had acted between meetings since the financial crisis in October of 2008.
The Fed action was in reaction to the steep drop in U.S. stock prices, which had fallen in a little over a week by 15% from record highs in mid-February. Stocks in the United States and around the world were hit hard by the new coronavirus (COVID-19) epidemic.
The U.S. stock market was on a roller coaster Tuesday. It began the day falling more than 1% after a big rise on Monday. Then with the Federal Reserve cut in interest rates, stocks rose almost 4%, but then soon gave back all of the gains and ended the day down about 3%, with the headline Dow Jones Industrial average down almost 800 points.
The problem, which the Fed admitted, is that the rate cut will do little to spur spending if people are worried about travel or going out to restaurants or the mall because of the virus. Even worse, lower interest rates will do nothing to offset the growing supply chain disruptions as parts from China and now south Korea are becoming unavailable with widespread shutdowns of businesses.